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Coronavirus Aid, Relief, and Economic Security (CARES) Act

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Fri, 03/27/2020
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hahnnews

Congress has just adopted the latest $2 trillion stimulus legislation: The Coronavirus Aid, Relief, and Economic Security (CARES) Act. While the Act awaits the President’s signature, we wanted to provide you with a summary of the sections you may find most interesting and important to your business or your individual situation. Prior legislation was passed within the past two weeks and this is the latest phase of the stimulus efforts by the federal government. You can find helpful information on employment and other issues that may affect your business and your employees on our COVID-19 information page. We will regularly update the page as new issues emerge.

The latest stimulus package provides a $367 billion program for small businesses to maintain their payroll for employees forced to stay at home or were furloughed. Another notable spending measure is $500 billion guaranteed and subsidized loans for specified industries including airlines, hotels and automobile manufacturers (which has been one of the obstacles to finalizing the CARES Act).

To assist you in understanding how this new legislation may impact you, we have listed specific elements of the Act that might relate to your business or to you individually.

A. For those who qualify, there are direct payments to be issued within a few weeks to all Americans including $1,200 per adult and $500 per child. There are limitations imposed in order to assist those individuals with incomes that do not exceed $150,000 for married couples and half that amount for single individuals (incomes in excess of such thresholds will receive reduced amounts). These payments will be processed through the IRS.

B. Small Business Interruption Loans will be funded with approximately $367 billion in loan guarantees and loan subsidies to be used for payroll support, paid sick or medical leave, employee salaries, business rental payments, mortgage payments and other debts with a maximum amount of $10M available. These are expected to be processed through the SBA and financial institutions.

C. The small business loans just described will have a loan forgiveness feature that will be available to borrowers equal to the payroll costs and costs related to the debt obligations so long as certain employee retention levels are maintained. Importantly, loan forgiveness would not be considered cancellation of debt income. Applications will require certain declarations of qualification that are to be developed by the SBA within a month of final passage of the Act.

D. Businesses can postpone estimated tax payments due until October 15, 2020, without a cap on the amount of tax payments postponed.

E. Employers and self-employed individuals are allowed to defer payment of the employer share of the social security tax. The deferred employment tax would be permitted to be paid over the following two years, with half to be paid by December 31, 2021, and the other half by December 31, 2022. Care needs to be taken with this deferment so that adequate funds will be available at the two deferral dates.

F. Net-operating losses (NOLs) carried from prior years into the current tax year would be relaxed allowing losses from 2018, 2019, or 2020 to be carried back five years. In addition, there is a temporary repeal of the 80% taxable income limitation (2018-2020 taxable years) to allow an NOL to fully offset income.

G. There is an increase from 30% to 50% of allowable interest expense that businesses can now deduct but only for the 2019 and 2020 taxable years.

H. Immediate write-offs of costs to improve facilities instead of having to depreciate such improvements over 15 years (a technical correction to The Tax Cuts and Jobs Act of 2017 to now allow bonus depreciation for such improvements).

I. There is a suspension for 2020 of the rules for required minimum distribution from retirement plans.

J. If a participant, or their spouse are otherwise impacted by the corona virus medically or financially there is permitted a penalty-free $100,000 distribution from a retirement plan. Income from a distribution can be recognized over a three year period. There is also the ability during that 3 year period to recontribute such a withdrawal to replenish the retirement plan.

K. There are increased charitable contribution ceilings for the 2020 taxable year.

REMINDER ABOUT A CHANGE IN THE FILING DATES FOR INCOME TAX RETURNS

You are likely already aware of the tax payment and tax filing extensions previously announced by the IRS and California. In response to the effects of COVID-19, the IRS announced that the filing and payment dates for federal income tax returns will be extended from April 15, 2020, to July 15, 2020 (free of interest or penalties). California has a similar rule.

Specifically, IRS Notice 2020-18 provides that all individuals, trusts, estates, partnerships, associations and companies or corporations (Affected Taxpayers) who are obligated to file a federal income tax return or make a federal income tax payment for the 2019 taxable year will be afforded an extension to July 15, 2020. Affected Taxpayers who are obligated to make federal estimated income tax payments (including payments of tax on self-employment income) on April 15, for the 2020 tax year, are also allowed to postpone these payments to July 15, 2020. Taxpayers do not have to file extension requests (i.e., Form 4868) in order to benefit from the postponed deadline. Additionally, there is no limitation on the amount of tax payment that may be postponed. This means that any amount of federal income tax payment may be postponed to July 15, 2020. California has a similar rule.

But note that other federal tax filings or payments are not extended (e.g., Forms 1099, estate tax and gift tax returns and estimated taxes from June 15 and forward). The Notice makes clear that “no extension for the payment or deposit of any other type of federal tax, or for the filing of any federal information return” is granted by the Notice.

Should you have any questions, or if we can be of any assistance, please feel free to contact our office. During this crisis, we are working from home but are fully capable of handling your matters efficiently and in a timely fashion.